China's resilience is an economic gut check for America
Nobel Laureate Michael Spence talks about lessons from China, austerity vs. stimulus, long-term investment in a politically divided democracy, and prospects for economic growth.
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Perhaps the Western consumer democracies, where the feedback signals of politics, the media, and the market all tend to steer society toward immediate gratification, could learn something these days from China?Skip to next paragraph
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Spence: Yes, we could especially learn from the way they think about the evolution of the economy over the long term and then, in a pragmatic, non-ideological way, set about getting things done.
Democracy makes it a much more complicated and time-consuming process to get from A to B, to build consensus, invest in and support those things that sustain long-term growth. It is not impossible to do that in democracies today, of course. Brazil has turned itself around, and India seems to be doing so. So there is something to learn from them as well.
And, as you point out in the example of California, we were able to do that at one time in the US.
But we’ve forgotten what it takes. Too often in some parts of the American political culture there is a narrative that simply says that “the government should provide stability and the private sector will take care of everything else.”
It doesn’t work that way. And it never has, even in the US It takes a commitment of resources and a long-term perspective. It is a bit like the way venture capital works. You don’t know exactly how things will unfold, but you have to have a portfolio of projects to try to create and capture emerging opportunities.
In the developing countries that are successful, they think more in terms of a complementary relationship between the public and private sector.
Saving and sacrifice
Gardels: Is there a cultural issue here? Do societies dominated by a consumer mentality have the political gumption anymore to save and sacrifice for the longer term?
Spence: I’m not sure I understand the underlying forces that have led us to short-termism and underinvestment. But I do know changing that is above all a political process of building consensus for responsible governance. Those who think all you need to do is cut taxes and everything else will fall in place are wrong.
For a country of our level of income and wealth, the state of the infrastructure has become an embarrassment. Why can’t we set a goal in America of having first-class infrastructure in 15 years?
Gardels: You said recently, “I have this gnawing feeling about the future of America. When people lose their sense of optimism, things tend to get more volatile. The future I most fear for America is Latin American: a grossly unequal society that is prone to wild swings from populism to orthodoxy, which makes sensible government increasingly hard to imagine.” You mentioned the Tea Party movement as one example.
What can be done to prevent the US from becoming like Latin America?
Spence: I don’t know how to get there politically. But I imagine there is still a non-ideological middle in America that is patriotic but not overly nationalistic. We were once a very pragmatic nation with the ability to compromise to move things forward.
If we believe what we say – that America is the land of opportunity for all and that is why people want to come here – then we need the policies that will make that actually true.
Many are worried about the stubbornly high US unemployment rate, but believe we will get back to normal after the recession is over. But going back to where we were is not realistic.
The emerging economies are going to be more than 50 percent of global GDP in the not-too-distant future. It is a changing world. We can’t afford to stand still and settle for endless political gridlock.
I think the US can change, but, to be honest, I just don’t see the political will at the moment.